The state also recently started using desk audits, in which they use third-party information to scrutinize whether businesses may be making more money than they're reporting. For example, the state can look at how many pizza boxes a vendor has sold to a pizzeria and if the number of boxes is more than the number of pizzas the company said it sold, the state can look closer to find whether tax evasion is the source of the discrepancy.

"If the state went through a normal audit process and determined that we owed money, we wouldn't fight it. We're not opposed to paying taxes," said Panaro.

Instead, he said he was told all of his paperwork checked out, but he didn't meet the state's standards for keeping "adequate records." The restaurant had failed to keep every paper copy of each guest's order receipt for the entire three-year period. That opened the door for the auditor to use "indirect audit methods" to estimate what he thought the restaurant owed.

The method of estimation the state used was to observe the restaurant's sales for a day, then compare it with the same date on a previous year. The previous year's reported sales were 25 percent lower, so the auditor took that percentage and multiplied it over each day's sales of the three-year period, deciding the restaurant did enough unreported business to owe an additional $330,000 in sales tax....

Joe Giafaglione, owner of Bar Bill Tavern in East Aurora, has been audited twice in the past four years. His purchase of ground hamburger raised suspicion when it was found there were no hamburgers on the menu (it was being used as an ingredient in chili).

"It's totally ridiculous the way they come up with figures without any evidence," said Giafaglione. "They say they need 20 [documents], so you give them 19 and they say, "Ah, you don't have that? Well, now we'll have to estimate.'"š"

A similar situation occurred with our company a number of years ago on a contract where some of the work had to be done using Davis-Bacon type mandated wage rates. These rates, for those who have never seen them, come in two parts. They might say, for example, that the minimum for such and such a job is $12.10 per hour plus $3.07 per hour cash instead of fringe benefits for a total of $15.17.

Using these figures, we gave folks an offer letter saying you will be paid $12.10 base pay plus $3.07 fringe for a total of $15.17 an hour. Then on the paycheck, they just got one line for their total hours times $15.17. Well, said the Department of Labor in an audit, you are not paying them the fringe, you are just paying the base pay -- we only see one number on the pay check. So you owe $3.07 times 20,000 or so hours, pay up.

Well, I was pretty surprised. I said it was pretty clear I was paying the fringe - why in the heck else would I pay someone an oddball wage like $15.17 that just so happened to be equal to the sum of base plus fringe. You can see the calculation in each offer letter. No dice, they said, the law requires that the payments have to be broken out on the pay stub.

This was back in my younger, naive days, when I thought the "expert" auditors actually knew the law. Now I know they are sometimes just making stuff up, but I was smart enough at the time to ask them to show me the legal requirement that these two payments be broken out on the pay stub -- show me something in writing. Nothing was forthcoming. My attorney later educated me that there is hierarchy of quality to what might be in writing:

This is where I began to learn about the hierarchy of labor law. As I understand it (and remember, I am not a lawyer) it is something like this, from strongest to weakest:

The actual statute as written by Congress, e.g. the Fair Labor Standards Act

Court rulings and precedents

Approved regulations what have been through the public comment and approval process

Formal DOL rulings

Internal DOL guidelines and manuals

Informal DOL rules of thumb

Numbers 1, 2, and 3 have a lot of legal force. Five and six may or may not "“ they represent the DOL's opinion, but that opinion has not been vetted by a regulatory hearing or court decision. These get overturned by courts all the time.

When the DOL tells you can or can't do something, they likely will say it with equal authority if it comes from 1 or 6. For example, in this case, the DOL said with total authority that the wage and fringe have to be split on the paycheck.

Anyway, I read the actual law myself. The only mention of anything even related to this was the need for adequate record-keeping to prove we had foll0wed the rules. I searched as far as I could through labor department regulations online and found no more detail. So I argued that unless they could produce something different, my position was that the offer letter plus the pay stub was adequate record keeping.

Eventually, the DOL let the issue drop - petulantly, they never actually dropped the claim, just told me they were choosing not to go to court against me at that time. Of course I am only a glutton for so much punishment, so in the future we split the payments out on the pay stub. It creates more work doing payroll, but what is government for, after all?

There is a principle in jurisprudence that "ignorance of the law is no excuse." In other words, no one can justify his illegal conduct on the grounds that he was unaware of the law. But what happens when the sheer volume, complexity, and ambiguity of the law means that neither citizens, nor the government, can reasonably knowwhat is and is not against the law?

Colorado currently has some 30,000 laws filling more than 50 volumes of the Colorado Revised Statutes, both criminal and regulatory. Every session, the Colorado General Assembly passes hundreds of new laws for government to enforce and citizens to both understand and obey. Aside from the sheer number of laws, the definition of what constitutes a criminal act has changed; often the legislature actually creates new crimes, and thus, new criminals, where no inherent criminality exists.

We operate in 11 states. Think of it. 50 volumes times 11 states plus the federal code. Eeek.

In his book Drug War Addiction, Sheriff Bill Masters of San Miguel County Colorado describes his discovery of the Colorado Statutes of 1908. At the time, "all the laws of the state fit in one volume. Murder, rape, assault, stealing, and trespassing were all against the law in 1908.

The unrest started last Thursday when angry
youths protested the accidental deaths of two teenagers in
Clichy-sous-Bois, who were electrocuted when they jumped a wall
surrounding a high-voltage electrical transformer while fleeing police. The
anger spread across the housing projects that dominate many of Paris'
northern and northeastern suburbs, which are marked by soaring
unemployment, delinquency and a sense of despair.

The
rioting has grown into a broader challenge for the French state. It has
laid bare discontent simmering in suburbs where immigrants "” many of
them African Muslims "” and their French-born children are trapped by
poverty, unemployment, discrimination, crime and poor education and
housing.

There are those who want to call this the beginning of a new European Intifada, a war of Muslims against non-Muslims. They want to portray these riots in the same context as Islamic terrorism and Al Qaeda.

Call me slow, but I just haven't seen evidence that the recent violence in Paris has religious overtones. Maybe it is under-reported, but I haven't seen any targeting of Christians or Jews or Jewish Temples and such that one might expect in intifada-type violence.

So far, a better explanation seems to be that these neighborhoods have been the victim of of the current form of Euro-socialism. In this economic model, a whole collection of laws make it very expensive for companies to hire anyone. If you do hire anyone, you have to pay them a very high salary, give them a fat package of benefits, weeks and weeks of paid vacation, and they only have to work 36 hours a week for you. And, if the person doesn't do a good job, too bad because it is nearly impossible to fire them. This may appear to be a great system for those who already have a job, but for the unemployed, the young, and the unskilled, it is a disaster. Who in their right mind is going to take a chance on a young, unskilled employee who you have to pay a fortune and who you can't fire if they aren't any good. And in particular, who is ever going to hire a young, unskilled immigrant for a job in France?

The answer is no one, which is possibly another reason for the rioting. France has an unemployment rate that has hovered around 10% for years, but the unemployment rate for those under 25 years old is a truly shocking 23% and I would bet the unemployment rate for young immigrants may be as high as 40-50%.

In the US, we have gone through phases of this same type of economic thinking. A big part of motivation behind the original passage of minimum wage law, including the recently famous Davis-Bacon law, was to protect skilled white laborers against wage competition from blacks and immigrants. Fortunately, the US has always stopped short of the radically distorting labor market laws they have in Europe, but new efforts in this country to raise minimum wages and generally make it harder for immigrants to enter the labor market should worry all of us, particularly those of us in immigrant heavy states like Arizona.

In part 1, we discussed general expectations you should have as a business owner in working with the Department of Labor. In this installment, I will discuss a typical audit and some of the things we did to protect ourselves. In part 3, I will discuss a specific example of how it is possible to win your case with the DOL, but it may take a LOT of effort.